4 ms·
Ask Pg / YC: Common Stock or Convertible Debt?
As what I understand, YC and other clones ask for 6% (average) founder's stock for their initial high risk investments in the new startups.
So just wondering whether someone starting new should follow the same formula of offering founder's stock (with no control) to 3F (family, friends and fools) from whom they're borrowing money (<$25k) or is it better to offer convertible debts? what are the pros and cons? OR is there any 3rd option?
- joshu 17y agoThree choices: Preferred, Common, and debt. Preferred stock is what investors typically get. It's got different rights (which vary) and usually a preference, which means common stock is subordinate at the payout time. The nice part of preferred stock is that it's price can change independent of the common stock, which has significant tax implications for option holders on common stock. Personally I don't like buying debt, as an angel. I won't do uncapped debt at all. I want to get my ownership (and take the risk) at the time I put the money down, not possibly a year or two later when someone else establishes the value.